Signs of life are emerging across Irvine, California-based real estate investment trust Sunstone Hotel Investors' portfolio of urban and group hotels, according to CEO Bryan Giglia.
The robust leisure demand achieved during the summer months has transitioned into "encouraging signs of increased corporate and group travel" during the fall, Giglia said during a call presenting third-quarter earnings results.
The third quarter represented Sunstone's strongest relative performance achieved since the onset of the COVID-19 pandemic, he added.
Comparable revenue per available room in September and total RevPAR for the third quarter both were above 2019 levels.
Giglia said Sunstone's operators successfully took an aggressive approach to pricing, which led to a comparable average daily rate of $288 in the quarter. This represents an 11% and 16% increase compared to 2021 and 2019, respectively, he said.
Sunstone achieved meaningful year-over-year rate growth across its entire portfolio, but the greatest increase was at its urban- and group-oriented hotels, he said. These hotels grew rates 20% in the quarter compared to 2021.
"San Francisco led the portfolio on rate growth and we are encouraged by the recent trends we are seeing there, especially with our recently completed rooms renovation," at the Hyatt Regency San Francisco, he said.
Giglia also highlighted improved occupancy levels at the company's San Francisco hotels, as group and corporate customers returned to the market.
"While the market has a way to go to return to 2019 levels, 69% RevPAR growth compared to 2021 is a positive step in the right direction," he said. "We expect that to continue into the fourth quarter."
Sunstone's comparable portfolio, which is comprised of 13 hotels and includes the Confidante Miami Beach but excludes the Montage Healdsburg and the Four Seasons Resort Napa Valley, booked 175,000 total group room nights in the quarter.
"The group segment comprised roughly 35% of our total demand. The group room nights volume represents approximately 85% of historical amounts with average rates that are 9% higher than the same quarter in 2019," Giglia said.
Future group bookings made in the quarter also exceeded 2021 levels and at rates that averaged 31% higher.
Business travelers accounted for approximately 60% of Sunstone's total room nights for the quarter. Comparable ADR was $317 and was 23% higher than what it was in the same quarter of 2019.
Giglia said he is also encouraged by signs of business travel occurring at a more regular cadence — for example, at the company's Renaissance Long Beach Hotel, where corporate negotiated revenue is up 36% compared to 2019.
"The hotel is seeing growth coming from government, aerospace and consulting segments," he said.
Business transient accounts at the Hyatt Regency San Francisco are also contributing higher volumes, with a large participation from the technology sector, resulting in corporate negotiated nights at roughly 90% of 2019 levels and up 17% compared to the second quarter of 2022.
In Boston, the Marriott Boston Long Wharf is realizing a sequential improvement in business travel as its key accounts have returned to offices or adopted a hybrid model, he said.
Overall, Sunstone's group business pickup in the current fourth quarter has been higher than typical, which underscores the trend of groups booking closer to their events.
"Group room nights for the fourth quarter are pacing at approximately 81% of pre-pandemic levels at an average rate that is 7% higher than 2019," he said. "This would imply that our overall group revenue pace for this time period is down only 13% from the same time in 2019."
Giglia added that the strong mix of group and transient business this year has allowed some of its hotels, including the Wailea Beach Resort in Wailea, Hawaii, to be more selective in the types of groups they accept.
"In some of the hotels that have a little bit more capacity, it will be a combination of bringing in additional groups with that spend but in other hotels we'll really be very selective in making sure [we're] getting the type of groups [we] want that are spending more," he said.
Third-Quarter Performance
Aaron Reyes, chief financial officer at Sunstone, said third-quarter results surpassed executives' expectations.
Adjusted earnings before interest, taxes, depreciation and amortization for real estate in the quarter was $64 million, an increase of 80.6% year over year, he said.
According to the company's earnings release, Sunstone had a net income of $20.5 million compared to a net loss of $22.1 million in the same quarter of 2021.
Total portfolio RevPAR of its 15 hotels, which include the comparable portfolio of 13 hotels and the Montage Healdsburg as well as the Four Seasons Resort Napa Valley, was $222.50 in the quarter. Total ADR was $311.62 and occupancy was 71.4%.
Roughly $1 million in revenue displacement related to the Westin conversion at its hotel in Washington, D.C., had an impact on third-quarter results, he said.
Sunstone also incurred $2 million in displaced revenue from Hurricane Ian cancellations in September.
